2012 (6) TMI 763 - HC - VAT and Sales Tax

Constitutional validity of levy of luxury tax on cable TV operators challenged - Held that - What is to be seen is that though the tax is a charge on the cable TV operators, the incidence of tax falls on the subscribers, i.e., ₹ 5 per month, which is probably two per cent of the monthly collection by the cable TV operators from the customers as average collection ranges from ₹ 200 to ₹ 250 per month. We therefore, do not find any constitutional infirmity in the levy of luxury tax on cable TV operators which they are bound to collect and remit from the subscribers at the rate of ₹ 5 per month, which is in addition to the service tax payable for the service provided by the cable TV operators. Retrospective amendment of 2010 exonerating cable TV operators with less than 7500 connections from liability is discriminatory and violative of article 14 of the Constitution of India because the State could not bring to our notice any distinction between those operators with less than 7500 connections and those with 7500 or above connections with the object of levy of luxury tax at the rate of ₹ 5 per month per person enjoying connection. We therefore, declare the levy of luxury tax on cable TV operators with above 7500 connections as discriminatory and violative of article 14 of the Constitution of India, and hence unconstitutional. Allow the WP(C) by declaring the impugned provisions of the Act authorizing levy and collection of luxury tax on cable TV operators including the petitioners with connections of 7500 or above as discriminatory and hence unconstitutional and invalid.

Issues Involved:
1. Constitutional validity of luxury tax on cable TV operators.
2. Discrimination against cable TV operators with more than 7500 connections.
3. Alleged discrimination against cable TV operators compared to direct-to-home operators.

Detailed Analysis:

1. Constitutional Validity of Luxury Tax on Cable TV Operators:
The petitioners challenged the constitutional validity of the luxury tax imposed on cable TV operators by the Kerala Tax on Luxuries Act, 1976, as amended by the Finance Act, 2006. The primary contention was that the service provided by cable TV operators does not amount to "luxury" within the meaning of entry 62 of List II of the Seventh Schedule to the Constitution. The court upheld the amendment, stating that the service provided by cable TV operators, which includes cinema and various entertainment programs, indeed falls under the definition of "luxury." The court also noted that the levy is on subscribers, with operators acting as tax collectors. The Supreme Court remanded the case to allow petitioners to raise additional grounds, including the argument that the field is occupied by Central legislation under entry 92C, List I, which provides for service tax on cable TV operators. The court, however, found that both service tax and luxury tax could be levied simultaneously, as supported by Supreme Court precedents.

2. Discrimination Against Cable TV Operators with More Than 7500 Connections:
The petitioners argued that the retrospective amendment exempting cable TV operators with less than 7500 connections from tax liability was discriminatory and violative of Article 14 of the Constitution. The court found merit in this argument, stating that there was no reasonable classification between operators with less than 7500 connections and those with more. The court emphasized that the tax is intended to be borne by subscribers, and the amendment allowed subscribers to avoid tax by choosing operators with fewer connections. The court declared this retrospective amendment as discriminatory and unconstitutional, noting that the subsequent amendment in 2011, which exonerated all operators, further supported the petitioners' case.

3. Alleged Discrimination Against Cable TV Operators Compared to Direct-to-Home Operators:
The petitioners also claimed discrimination under Article 14, arguing that direct-to-home (DTH) operators providing similar services were not subjected to the same tax. The court dismissed this argument, noting that DTH services were not prevalent in 2006 when the luxury tax was introduced for cable TV operators. The court accepted the respondents' argument that the tax was later extended to DTH operators as their services became more widespread. The court found no merit in the challenge on this ground, as the petitioners could not provide statistics to support their claim of discrimination at the time of the original amendment.

Conclusion:
The court allowed the WP(C) by declaring the luxury tax provisions on cable TV operators with more than 7500 connections as discriminatory and unconstitutional. All notices and proceedings under the Act were vacated. The challenge based on alleged discrimination against DTH operators was dismissed.

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